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Shrestha v. NRT, Inc.: Class Action Lawsuit over Fees Proceeds

A California appellate court has considered whether a lower court properly dismissed a class action lawsuit filed against real estate brokerage firms over their collection of a "document preparation fee" in addition to their commission amount.

NRT, Inc. ("Corporation") is the parent corporation of Coldwell Banker Residential Real Estate Brokerage, which operates approximately 160 real estate offices throughout California. The total number of licensed real estate licensees affiliated with these offices is 8,500, and the offices are involved in approximately 85,000 residential real estate transactions per year.

Rajeev Shrestha ("Buyer") entered into an agreement and one of the Corporation's salespeople ("Salesperson") acted as a dual agent. As part of the standard purchase agreement, the Buyer agreed to pay the Corporation a $350 fee upon the close of escrow. The Buyer questioned the fee and asked for it to be removed. The Salesperson refused, stating that the fee covered the costs of paperwork. A set of supplemental escrow instructions prepared by the Corporation described the $350 fee as a "document compliance fee" ("Fee"), and the Corporation's standard form left the fee amount open. The Buyer's purchase closed successfully.

The Buyer brought a lawsuit against the Corporation, claiming that the Fee amounted to an unlawful business practice and the practice of collecting both a commission and the Fee constituted a breach of fiduciary duty to the Corporation's clients. The Buyer argued that the commission already covered all such fees. The Buyer sought to have his lawsuit certified as a class action, covering all California residents who participated in a residential real estate transaction from October 1998 to present and were charged the Fee. The trial court denied the motion for class certification, determining that the Buyer's allegations were inappropriate for a class action because the facts of each transaction could vary so widely. The Buyer appealed.

The California Court of Appeal, Fourth District, reversed the trial court's denial of class certification. A court will certify a class action when there is a common question amongst the class; the class representative has claims typical of the class; and class representatives can adequately represent the class. The certification of a class is not a judgment of the sufficiency of the allegations; rather, it is simply a determination that the requirements for class certification have been met.

A party claiming violations of California's unfair business practices statute must allege that the public is likely to be deceived by the challenged business practice. The court found that looking at the Corporation's policy of collecting two fees for a transaction could serve as the basis of a class action for violations of the state's unfair business, since the class designated by the Buyer only included parties who had paid this fee. While each transaction did have many unique facts such as the type of disclosure made to the consumer and the amount of documents prepared by the licensee, these facts did not detract from the basic question of whether the practice of charging two fees to consumers amounted to a double billing of consumers without adequate disclosure. Therefore, the court reversed the trial court because there was a common question of law amongst the proposed class and the case was sent back to the lower for further proceedings, in which the lower court would conduct proceedings to define the exact parameters of the class.

Next, the court considered the breach of fiduciary duty allegations. A real estate licensee and his/her client are in a fiduciary relationship, with the licensee having the "obligation of undivided service and loyalty" to his/her client. To allege a breach of fiduciary duty, there are many factors which need to be considered, such as contractual language. The Buyer based his allegations on the Corporation's form contract, stating that this agreement could be interpreted without any reference to the unique factors of each transaction. The Buyer also claimed that the Corporation's practices amounted to its representatives receiving more compensation than they were entitled to receive under their representation agreements. Since the trial court had not developed facts on this, the court declined to rule whether a class action was appropriate for breach of fiduciary duty allegations. Instead, the court sent the case back to the trial court for further proceedings.

Shrestha v. NRT, Inc., No. D043528, 2005 WL 39139 (Cal. Ct. App. Jan. 28, 2005). [This is a citation to a Westlaw document. Westlaw is a subscription, online legal research service. If an official reporter citation should become available for this case, the citation will be updated to reflect this information].